Why mortgage product transfers may not be fair to borrowers

Posted 16 December 2016

The Association of Mortgage Intermediaries thinks the process of 'product transfers' is being used incorrectly by lenders and should be studied by the FCA

Mortgage experts have called on the regulator to investigate the process of 'product transfers' which they believe are circumventing new lending rules.

Under the process, borrowers who have come to the end of a fixed or discounted rate can be switched onto a new product without formal advice. Experts believe that product transfers - worth an estimated £80bn-100bn a year - could be detrimental to borrowers as they fail to take other issues into account.

Practice of product transfers 'highly questionable at worst'

Product transfer tactics adopted by lenders break mortgage market rules and should be reviewed by the Financial Conduct Authority, according to industry experts. The Association of Mortgage Intermediaries' (AMI) most recent economic bulletin has criticised lenders for potentially treating consumers unfairly because of a lack of transparency around product transfers.

Product transfers are estimated to be worth between £80bn and £100bn - more than a third of all mortgage lending. At present, banks and building societies do not report how much of their business consists of product transfers as these figures are included in more general remortgage data.

AMI says: "Customers face potential detriment as a straightforward product transfer does not always trigger a revaluation, affecting LTV, rate and affordability. The ongoing refusal of lenders to disclose the volume of lending done on a product transfer basis is opaque at best and highly questionable at worst.”

AMI board member Ray Boulger says that the way some lenders promote product transfers risks breaching the new mortgage regulations, introduced in April 2014.

He says: “I think the concern is that lenders are effectively circumventing the basis of the MMR by encouraging people to go down the non-advised route and offering them certain incentives on a product transfer. Lenders appear to be trying to get around the rules that the MMR tried to implement.

“The worry that we have at AMI is that lenders are pushing people into taking these deals on a non-advised basis where other factors won’t be taken into account.”

Lenders increasingly proactive in encouraging borrowers to stay

Industry experts say that lenders are increasingly contacting their own borrowers to encourage them to take out a product transfer, offering incentives such as waiving early repayment charges and offering lower payments. However, in many cases borrowers could be better off remortgaging to another lender to benefit from cheaper deals.

The AMI say that the issue should be taken up by the FCA as part of its upcoming review into competition in the mortgage market. It says: “If regulation encourages shopping around by customers in general insurance and annuity markets, will the market study into competition in the mortgage market ignore or acknowledge the potential customer detriment caused by continuing to allow lenders to bury product transfer lending volumes without full disclosure?”

Compliance expert Bill Warren agrees that the FCA should take up the issue. He says: “I hope the FCA listens to AMI and the intermediary market, in terms of whether this is doing the right thing. Is simple product transfer treating customers fairly and giving them the best deal? I don’t think it is. It will be in certain cases, but in a lot it won’t.”


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